State Farm Assignment Agency

[zax]

My wife has been working for a SF agent for the past 8 years and has recently began the process to become an agent herself. It seemed like a great opportunity at first, but the more I research it, the less promising it looks.

I have a great job in another industry with a 6-figure income and some money saved up, so we have the funding and won't need to take on any debt (I think). I plan to help her 10-20 hours a week as she establishes her business and I keep my full-time job. If we proceed, she will be taking over a $4 MM BOB. It is not yet clear whether she would keep it all or it would be pared down to about $1.5 MM as I've seen stated on other threads.

This is my main concern at this point:

1) I've seen a lot of threads stating that with a captive agency, new agents quickly get into debt "up to their eyeballs". In my case, I fear losing $100K+ of our own savings instead of the debt, but it's the same principle. I don't fully understand how this could happen. I would think that worst case scenario, she would break even and make $0 net profit in the first year and grow from there. Can someone please explain to me how debt is quickly accumulated after taking over a significant book of business?

P.S. I know every thread on this site talks about how much better Independent is than Captive, and I'm convinced that's probably true. Maybe that's a choice we will seriously consider in 5-10 years, but I'd like to keep that off the table for this particular thread please.

 

[Lopezshow]

My two cents.. looking at your situation I came from a captive company so I am telling you from experience I wouldn't do it. You said it yourself you even think independent is the way to go. Well with that said maybe she can try to work for an independent for a year and learn the indy way then you guys can purchase an independents book or start new. You guys have the capital already so that's great most don't have that luxury.

Its like this.. look at the captive agency if they raise their rates you have a problem or they have a moratorium in a certain product you are stuck.

Independent if one product is failing with one company you can move them to another product or sell another. Its up to you but I wouldn't go captive. I see agents that bought a captive book with over 2,000 policies and they aren't happy.

Everyone has their own niche so she's been there for 8 yrs she might like it who knows.

Hope it all works out for you sir.

 

[indienoise]

Think about this for a second. She would be assigned a book of business someone else built. Here's what State Farm is proposing: You and your wife take your capital and bear the risk to start a new agency. Sure, they hook you up with a book of business to start with. They pay her a low commission as far as the industry is concerned, but help with marketing. She still spends marketing, but follow their plan. She is helping pay for SF branding more so than marketing her agency. Captives like passive marketing that isn't as efficient as it used to be. She pays the employees they require her to have. She pays the lease. They stick her with quotas for life and financial along with P&C, and if she is successful, what does she get? She gets a portion of her book "assigned" to the next agency they open up a quarter mile down the road from her. Essentially, her earning potential is capped. Oh, and if they decide it's not working out for them, well, see ya.
To me, that sounds less like investing time and capital into a business, and more like investing into just another job. If she's not ready to commit to actually owning her business, I'd rather just stay in the role of an employee. I don't mean for that to sound harsh, just speaking frankly.
That said, I would not recommend jumping straight from State Farm to owning an independent agency. Life on the indy side is very different than it is at SF, or any captive really.

 

[xrac]

Why put your money at risk in a business you do not control.

 

[Lopezshow]

Think about this for a second. She would be assigned a book of business someone else built. Here's what State Farm is proposing: You and your wife take your capital and bear the risk to start a new agency. Sure, they hook you up with a book of business to start with. They pay her a low commission as far as the industry is concerned, but help with marketing. She still spends marketing, but follow their plan. She is helping pay for SF branding more so than marketing her agency. Captives like passive marketing that isn't as efficient as it used to be. She pays the employees they require her to have. She pays the lease. They stick her with quotas for life and financial along with P&C, and if she is successful, what does she get? She gets a portion of her book "assigned" to the next agency they open up a quarter mile down the road from her. Essentially, her earning potential is capped. Oh, and if they decide it's not working out for them, well, see ya.
To me, that sounds less like investing time and capital into a business, and more like investing into just another job. If she's not ready to commit to actually owning her business, I'd rather just stay in the role of an employee. I don't mean for that to sound harsh, just speaking frankly.
That said, I would not recommend jumping straight from State Farm to owning an independent agency. Life on the indy side is very different than it is at SF, or any captive really.

He said it perfectly Indy is a different ball game and much better.

 

[zax]

I appreciate all the feedback, but nobody has helped answer my question. I really don't want to muddy this thread with the captive vs. indy discussion. There are already plenty of threads about that.

I am really trying to understand how a SF Assignment Agency could turn into a money pit. Please help me understand this if you have any insight.

I found out that my wife would only get to keep $1.8MM of the existing BOB. I believe that would bring in at least $15k/month in guaranteed revenue. This is of course assuming she could grow the BOB. If we kept our monthly expenses down to $12k-$15k, how would we lose money. I know this isn't ideal and she wouldn't be making much money, but how could we LOSE money?

 

[bobson]

I appreciate all the feedback, but nobody has helped answer my question. I really don't want to muddy this thread with the captive vs. indy discussion. There are already plenty of threads about that.

I am really trying to understand how a SF Assignment Agency could turn into a money pit. Please help me understand this if you have any insight.

I found out that my wife would only get to keep $1.8MM of the existing BOB. I believe that would bring in at least $15k/month in guaranteed revenue. This is of course assuming she could grow the BOB. If we kept our monthly expenses down to $12k-$15k, how would we lose money. I know this isn't ideal and she wouldn't be making much money, but how could we LOSE money?

How could your monthly expenses be $15,000 in a 2 person insurance agency?

 

[wornout]

Be warned - State Farm is conning you. She maybe get the $1.8 million, but the staff and service will weigh down the production - which is what she will ultimately be paid on. Understand the score card and premium builder (she may not be eligible). They will take business away if you don't sell enough financial products.

Like the others said, Go independent - $15,000 in monthly expenses is outrageous for a new agent. Old staff members rarely produce for the new agent and have high salaries based on the $4.4MM book.

 

[Ambrose]

Clearly we as insurance agents don't need to have reading comprehension skills to be successful...because no one here has any.

"P.S. I know every thread on this site talks about how much better Independent is than Captive, and I'm convinced that's probably true. Maybe that's a choice we will seriously consider in 5-10 years, but I'd like to keep that off the table for this particular thread please."

 

[runtilmylegsdrpoff]

Sounds like State Farm is not really like a "good neighbor"; more like a good back stabber. smh